Notes Chapter 3 Business Environment

Class 12 students can refer to Chapter 3 Business Environment notes given below which is an important chapter in the class 12 Business Studies book. These notes and important questions and answers have been prepared based on the latest CBSE and NCERT syllabus and books issued for the current academic year. Our team of Business Studies teachers has prepared these notes for class 12 Business Studies for the benefit of students so that you can read these revision notes and understand each topic carefully.

Business Environment Notes Class 12 Business Studies

Refer to the notes and important questions given below for Business Environment which is really useful and has been recommended by Class 12 Business Studies teachers. Understanding the concepts in detail and then solving questions by yourself will help you to learn all topics given in your NCERT Books.

Notes Chapter 3 Business Environment

Meaning of Business Environment:

Business environment refers to forces and institutions outside the firm with which its members must deal to achieve the organisational purposes. Here
• Forces = economical, social, political, technological etc
• Institutions = suppliers, customers, competitors etc

Features of Business Environment

1. Totality of external forces: Business environment is the sum total of all the forces/factors external to a business firm.
2. Specific and general forces: Business environment includes both specific and general forces. Specific forces include investors, competitors, customers etc. who influence business firm directly while general forces include social, political, economic, legal and technological conditions which affect a business firm indirectly.
3. Inter-relatedness: All the forces/factors of a business environment are closely interrelated. For example, increased awareness of health care has raised the demand for organic food and roasted snacks.
4. Dynamic: Business environment is dynamic in nature which keeps on changing with the change in technology, consumer’s fashion and tastes etc.
5. Uncertainty: Business environment is uncertain as it is difficult to predict the future environmental changes and their impact with full accuracy.
6. Complexity: Business environment is complex which is easy to understand in parts separately but it is difficult to understand in totality.
7. Relativity: Business environment is a relative concept whose impact differs from country to country, region to region and firm to firm. For example, a shift of preference from soft drinks to juices will be welcomed as an opportunity by juice making companies while a threat to soft drink manufacturers.


1. Identification of opportunities to get first mover advantage: Understanding of business environment helps an organization in identifying advantageous opportunities and getting their benefits prior to competitors, thus reaping the benefits of being a pioneer.
2. Identification of threats: Correct knowledge of business environment helps an organization to identify those threats which may adversely affect its operations. For example, Bajaj Auto made considerable improvements in its two wheelers when Honda & other companies entered the auto industry.
3. Tapping useful resources: Business environment makes available various resources such as capital, labour, machines, raw material etc. toa business firm. In order to know the availability of resources and making them available on time at economical price, knowledge of business environment is necessary.
4. Coping with Rapid changes: Continuous study/scanning of business environment helps in knowing the changes which are taking place and thus they can be faced effectively.
5. Assistance in planning and policy formulation: Understanding and analysis of business environment helps an organization in planning &policy formulation. For example, ITC Hotels planned new hotels in India after observing boom in tourism sector.

Notes Chapter 3 Business Environment


1. Economic Environment: It has immediate and direct economic impact on a business. Rate of interest, inflation rate, change in the income of people, monetary policy, price level etc. are some economic factors which could affect business firms. Economic environment may offer opportunities to a firm or it may put constraints.
2. Social Environment: It includes various social forces such as customs, beliefs, literacy rate, educational levels, lifestyle, values etc. Changes in social environment affect an organization in the long run. Example: Now a days people are paying more attention towards their health, as a result of which demand for mineral water, diet coke etc. has increased while demand of tobacco, fatty food products has decreased.
3. Technological Environment: It provides new and advance ways/techniques of production. A businessman must closely monitor the technological changes taking place in the industry as it helps in facing competition and improving quality of the product. For Example, Digital watches in place of traditional watches, artificial fabrics in place of traditional cotton and silk fabrics, booking of railway tickets on internet etc.
4. Political Environment: Changes in political situation also affect business organizations. Political stability builds confidence among business community while political instability and bad law & order situation may bring uncertainty in business activities. Ideology of the political party, attitude of government towards business, type of government-single party or coalition government affects the business Example: Bangalore and Hyderabad have become the most popular locations for IT due to supportive political climate.
5. Legal Environment: It constitutes the laws and legislations passed by the Government, administrative orders, court judgements, decisions of various commissions and agencies. Businessmen have to act according to various legislations and their knowledge is very necessary. Example: Advertisement of Alcoholic products is prohibited and it is compulsory to give statutory warning on advertisement of cigarettes.

Mind Map

Notes Chapter 3 Business Environment
Notes Chapter 3 Business Environment

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